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Will Silicon Valley Bank’s Collapse Cause Pain for Gov Tech?

It’s still early, but federal guarantees for deposits have eased some anxieties in the gov tech space. More “ripples” seem almost certain to hit suppliers, potentially slowing growth in a fast-evolving industry.

"Silicon Valley Bank" written above the entrance to a building.
Shutterstock/Michael Vi
The government technology industry seemed to breathe a bit easier early this week as the Biden administration promised that Silicon Valley Bank (SVB) customers will have access to their money.

But that doesn’t mean worry has dissipated among suppliers and investors about how the bank’s quick collapse could slow down gov tech, still in a period of significant growth.

As the U.S. Department of Justice announced a probe into the bank’s failure and operations, some suppliers told Government Technology that nothing should change immediately within the industry.

That’s thanks to the quick action of regulators to the bank’s collapse, one of the largest bank failures in U.S. history — one that happened as the general tech industry, or Big Tech, is experiencing major growing pains.

“Given the [Federal Deposit Insurance Corporation] FDIC’s rapid response to the SVB collapse, it appears that depositors will be made whole effectively immediately,” said Bryan Burdick, president and co-founder of ClearGov, which sells budgeting tools for governments. “So, in the short term, at least, we expect business as usual for gov techs.”

ClearGov has never done business with SVB, he said.


It’s hard to determine exactly how many gov tech companies did business with Silicon Valley Bank.

But the client list is likely peppered with such firms, especially startups, according to industry experts. Indeed, the bank served almost a cool-kids’ list of popular, aggressive and young tech firms from around the world.

“SVB said they banked nearly half of all U.S. venture-backed startups, and that is probably a good indicator for the exposure within gov tech,” said Jeff Cook, a market expert who is managing director at investment bank Shea & Co.

For instance, Zencity, a gov tech firm based in New York and Tel Aviv that recently launched a ChatGPT communications tool for local governments, “used SVB historically” but has experienced no impact from the “FDIC’s actions,” a Zencity spokesperson told Government Technology.

Civis Analytics, a data science company that sells technology governments use to shape policy, in late 2021 announced a $30.7 million Series B funding round that included Silicon Valley Bank. Civis Analytics did not immediately respond to a request for comment.


The collapse of SVB was followed by regulators closing New York-based Signature Bank, whose depositors also received federal guarantees over the weekend. That failure was the third largest in U.S. history. Some observers have blamed Signature’s focus on cryptocurrency-related business as the reason for its fall, but others have disputed that.

As Burdick sees it, the only long-term major issue could come from those two bank failures leading to a widespread banking collapse and deep recession. But he said he doesn’t put much stock in that because of signals the Federal Reserve has sent about easing up on interest rate increases.

If a recession does happen, he sees gov tech as a relatively safe investment harbor, as do many other experts and players in the industry.

“Bottom line is that we don’t see a massive, systemic risk to the gov tech sector,” he said.


But even as federal actions have cooled some of the concerns in the banking sector, the truth is that Silicon Valley Bank occupied a unique place in the tech world, according to David Shohet, managing director of MergerTech Advisors.

That means gov tech is likely to feel some pain.

“The dramatic SVB failure will have ripple effects in the market,” he told Government Technology via email.

Many venture capitalists, for instance, favored the bank, he said, and that resulted in startups moving accounts over to SVB during funding rounds. That likely will result in those companies seeking new banks and credit lines.

“Just as important is the perception that there may be downstream impacts on accounts or credit facilities, which will likely cause some startups to change behavior in the short term,” he said. “Since startups by nature ride huge volatility, a few weeks of uncertainty in March 2023 will echo for a few quarters as a new norm is established.”


Cook agreed that gov tech has reason for at least some worry. He said, however, that gov tech, as a category, probably has a stronger position than others to withstand the shock of the SVB failure.

“Gov tech businesses tend to be more profitable and at earlier stages than their counterparts in other sectors, and cash-generating businesses will have more ability to navigate through this compared to cash-burning businesses,” he said. But that is not to understate the impact and disruption, as there are more venture-backed gov tech startups than ever before and unfortunately these are the businesses that are most at-risk.

As this all plays out — with news about the recent bank collapses breaking almost by the minute — some executives at gov tech suppliers are taking a long-term optimistic view. That includes Julian Cardarelli, CEO at Thentia Cloud, a Toronto-based occupational licensing software provider expanding in the U.S.

He told Government Technology that Thentia has no exposure to Silicon Valley Bank. He said that the industry as a whole will continue to grow.

“The digital transformation train has left the station,” he said. “Government will continue to accelerate its digital transformation initiatives for the foreseeable future.”
Thad Rueter writes about the business of government technology. He covered local and state governments for newspapers in the Chicago area and Florida, as well as e-commerce, digital payments and related topics for various publications. He lives in Wisconsin.